Have real interest rates really fallen that much in Spain?
AbstractThis paper analyses the behaviour of real interest rates in the Spanish economy over the last 15 years. Since inflation-indexed-bonds are not available, changes in implicit real interest rates are estimated using several approaches suggested by macroeconomic and financial theory. In particular, we employ equilibrium conditions of a representative agent under several specifications of preferences. Moreover, we exploit no-arbitrage conditions in securities markets. The evidence we report indicates that inflation uncertainty could account for a notable part of the observed decrease in nominal rates. Consequently, the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0704.
Length: 24 pages
Date of creation: Feb 2007
Date of revision:
real interest rates; intertemporal marginal rate of substitution;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-CBA-2007-03-10 (Central Banking)
- NEP-CFN-2007-03-10 (Corporate Finance)
- NEP-EEC-2007-03-10 (European Economics)
- NEP-MAC-2007-03-10 (Macroeconomics)
- NEP-MON-2007-03-10 (Monetary Economics)
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